Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 945: Supply Function Equilibria in Networks with Transport Constraints

Pär Holmberg () and Andrew Philpott
Additional contact information
Pär Holmberg: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Andrew Philpott: Department of Engineering Science, Postal: University of Auckland

Abstract: Transport constraints limit competition and arbitrageurs possibilities of exploiting price differences between commodities in neighbouring markets. We analyze a transport-constrained network with local demand shocks, where spatially distributed oligopoly producers compete with supply functions, as in wholesale electricity markets. Uniqueness and existence results are proven, and we are able to explicitly solve for symmetric supply-function equilibria in some special cases.

Keywords: Spatial competition; Multi-unit auction; Supply-function equilibrium; Transmission network; Wholesale electricity markets

JEL-codes: C72; D43; D44; L91

72 pages, First version: December 18, 2012. Revised: August 10, 2015.

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